What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-14 compared with 2024-11-06 · 124 added, 222 removed, 263 unchanged (57% of the section changed)

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information, future events or otherwise.

The following discussion

and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item

1 of this Quarterly Report and consolidated financial statements for the year ended December 31, 2023 included in our most recent Annual

Report on Form 10-K.

All information in the following discussion and analysis present the results of continuing operations and exclude

amounts related to discontinued operations for all periods presented unless otherwise stated.

The following discussion and

analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in Item 1 of

this Quarterly Report and consolidated financial statements for the year ended December 31, 2024 included in our most recent Annual Report

on Form 10-K.

All information in the following discussion and analysis present the results of continuing operations and exclude amounts

related to discontinued operations for all periods presented unless otherwise stated.

Neonode Inc., collectively

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“registrant”, or “Company”.

Our company provides advanced

Neonode provides advanced

optical sensing solutions for touch, contactless touch, and gesture sensing.

We also provide software solutions for machine perception

that feature advanced machine learning algorithms to detect and track persons and objects in video streams for cameras and other types

that feature advanced machine learning algorithms to detect and track persons and objects in video streams from cameras and other types

We base our contactless touch, touch, and gesture sensing products and solutions using our zForce technology platform and

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develop, manufacture and sell.

Since 2010, our licensing customers have sold approximately 95 million devices that use our patented technology.

As of September 30, 2024,

we had 37 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier

Since 2010, our licensing customers have sold over 95 million devices that use our patented technology.

As of March 31, 2025, we had

37 valid technology license agreements with global OEMs, Original Design Manufacturers (“ODMs”) and automotive Tier 1 suppliers.

Our licensing customer base

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A summary of our financial

results is as follows (in thousands, except percentages):

results is as follows:

Three months ended

September 30,

Percentage of revenue

Non-recurring engineering

Percentage of revenue

Total Revenue

Cost of revenues:

Non-recurring engineering

Percentage of revenue

Total cost of revenues

Total gross margin

Operating expenses:

Research and development

Percentage of revenue

Sales and marketing

Percentage of revenue

General and administrative

Percentage of revenue

Total operating expenses

Percentage of revenue

Operating loss

Percentage of revenue

Other income (expense)

Percentage of revenue

Provision for income taxes

Percentage of revenue

Net loss from continuing operations

Percentage of revenue

Net loss per share from continuing operations

Nine months ended

September 30,

(in thousands, except percentages)

Percentage of revenue

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Percentage of revenue

Other income (expense)

Other income, net

Percentage of revenue

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Percentage of revenue

Net loss from continuing operations

Loss from continuing operations

Percentage of revenue

Net loss per share from continuing operations

All of our sales for the

three and nine months ended September 30, 2024 and 2023 were to customers located in the United States, Europe and Asia.

Total revenues were $0.8 million and $2.5 million for the three and

nine months ended September 30 2024, respectively, compared to $0.8 million and $3.1 million for the same periods in 2023, respectively.

The decrease in total revenues of 0.2% and 21.0% for the three and nine months ended September 30, 2024, respectively, as compared to

the same periods in 2023, are explained by lower license fees offset by higher non-recurring revenues.

Revenues from license fees were $0.7 million and $2.1 million for the

three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $3.1 million for the three and nine months

ended September 30, 2023, respectively.

The decrease of 12.6% and 31.2% for the three and nine months ended September 30, 2024, respectively,

as compared to the same periods in 2023, were mainly due to lower demand for our legacy customers products within printer and passenger

car touch applications offset by revenues from new licensing customers.

Loss per share from continuing operations

All of our sales for the three

months ended March 31, 2025 and 2024 were to customers located in the United States, Europe and Asia.

Total revenues were $0.5 million

for the three months ended March 31 2025, compared to $0.8 million for the same period in 2024.

The decrease in total revenues of 37.0%

for the three months ended March 31, 2025, as compared to the same period in 2024, is explained by lower license fees and non-recurring

Revenues from license fees

were $0.5 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024.

of 35.7% for the three months ended March 31, 2025, as compared to the same period in 2024, was mainly due to lower demand for our legacy

customers products within printer and passenger car touch applications.

Non-recurring Engineering

Revenues from non-recurring

engineering were $107,000 and $335,000 for the three and nine months ended September 30, 2024, respectively, compared to $4,000 and $29,000

for the three and nine months ended September 30, 2023, respectively.

Most of our non-recurring engineering revenues are related to application

development and proof-of-concept projects related to our TSMs or to our zForce and MultiSensing technology platforms.

The increase of

2,575.0% and 1,055.2% for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 was

the result of TSM licensing projects and the new MultiSensing project with a commercial vehicle OEM.

engineering were $16,000 for the three months ended March 31, 2025, compared to $41,000 for the three months ended March 31, 2024.

of our non-recurring engineering revenues are related to application development and proof-of-concept projects related to our zForce and

MultiSensing technology platforms.

The decrease of 61.0% for the three months ended March 31, 2025, as compared to the same period in

2024 was the result of fewer projects.

The following tables presents

the net revenues by market and revenue stream for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Three months ended

September 30, 2024

Three months ended

September 30, 2023

Non-recurring engineering

IT & Industrial

Non-recurring engineering

Nine months ended

September 30, 2024

Nine months ended

September 30, 2023

the net revenues by market and revenue stream:

Three months ended March 31,

(in thousands)

Non-recurring engineering

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Our total gross margin was

97.1% and 97.3% for the three and nine months ended September 30, 2024, respectively, compared to 100.0% and 99.7% for the three and nine

months ended September 30, 2023, respectively.

98.2% for the three months ended March 31, 2025, compared to 97.9% for the three months ended March 31, 2024.

Our cost of revenues includes

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Research and Development

Research and development (“R&D”) expenses were $0.8

million and $2.7 million for the three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $2.7 million

for the three and nine months ended September 30, 2023, respectively.

R&D expenses primarily consist of personnel-related costs in

addition to external consultancy costs, such as testing, certifying and measurements, along with costs related to developing and building

new product prototypes.

The R&D expenses for the three and nine months ended September 30, 2024 were in line with the same periods

Research and development (“R&D”)

expenses were $1.0 million for the three months ended March 31, 2025, compared to $0.9 million for the three months ended March 31, 2024.

The increase of 8.9% for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to higher payroll

and related costs.

R&D expenses primarily

consist of personnel-related costs in addition to external consultancy costs, such as testing, certifying and measurements, along with

costs related to developing and building new product prototypes.

Sales and Marketing

Sales and marketing expenses were $0.5 million and $1.8 million for

the three and nine months ended September 30, 2024, respectively, compared to $0.5 million and $1.8 million for the three and nine months

ended September 30, 2023, respectively.

The decrease of 6.2% for the three months ended September 30, 2024 compared to the same period

in 2023 was primarily related to lower payroll and related costs offset by higher professional fees.

The decrease of 2.6% for the nine

months ended September 30, 2024 compared to the same period in 2023 was primarily related to lower payroll and related costs offset by

higher professional fees and advertising costs.

Sales and marketing expenses

were $0.6 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024.

of 21.3% for the three months ended March 31, 2025 compared to the same period in 2024 was primarily related to lower payroll and related

Our sales and marketing activities

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General and Administrative

General and administrative expenses were $0.7 million and $2.7 million

for the three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $2.5 million for the three and nine

months ended September 30, 2023, respectively.

The decrease of 2.7% for the three months ended September 30, 2024 compared to the same

period in 2023 was primarily related to lower professional fees.

The increase of 6.1% for the nine months ended September 30, 2024 compared

to the same period in 2023 was primarily related to payroll and related expense.

General and administrative

expenses were $0.9 million for the three months ended March 31, 2025, compared to $1.0 million for the three months ended March 31, 2024.

The decrease of 12.3% for the three months ended March 31, 2025, compared to the same period in 2024 was primarily related to lower payroll

and related costs.

Other income was $0.2 million

and $0.5 million for the three and nine months ended September 30, 2024, respectively compared to $0.2 million and $0.6 million for the

three and nine months ended September 30, 2023, respectively.

The other income for the periods was mainly related to interest income earned.

Our effective tax rate was 1.0% and (0.2)% for the three and nine months

ended September 30, 2024, respectively, compared to (3.4)% and (2.8)% and for the three and nine months ended September 30, 2023, respectively.

The negative tax rate is due to withholding taxes from sales and the decrease is due to lower license revenue during 2024.

As a result of the factors discussed above, we recorded a net loss

from continuing operations of $1.1 million and $4.4 million for the three and nine months ended September 30, 2024, respectively, and

$1.1 million and $3.5 million for the same periods in 2023.

for the three months ended March 31, 2025, compared to $0.2 million for the three months ended March 31, 2024.

The other income for the

period was mainly related to interest income earned.

Our effective tax rate was 0.6% for the three months ended March 31,

2025, compared to (0.6)% for the three months ended March 31, 2024.

The tax rate is due to global intangible low-taxed income and change

in valuation allowance.

As a result of the factors

discussed above, we recorded a loss from continuing operations of $1.8 million for the three months ended March 31, 2025, and $1.7 million

for the same periods in 2024.

Liquidity and Capital Resources

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ability to raise additional capital, if necessary.

As of September 30, 2024,

we had cash and cash equivalents of $17.6 million, as compared to $16.2 million as of December 31, 2023.

As of March 31, 2025, we had

cash and cash equivalents of $15.0 million, as compared to $16.4 million as of December 31, 2024.

Based on our current cash position,

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twelve-month period subsequent to the date of this Report.

Working capital (current assets less current liabilities) was $17.7

million as of September 30, 2024, compared to $16.1 million as of December 31, 2023.

Net cash used in operating activities for combined continuing and discontinued

operations for the nine months ended September 30, 2024, was $4.4 million and was primarily the result of a net loss of $4.9 million and

approximately $0.4 million in non-cash operating expenses, comprised of stock-based compensation expense, depreciation and amortization,

amortization of operating lease right-of-use assets and inventory impairment loss and changes in operating assets and liabilities of $28,000.

Net cash provided by financing activities for the nine months ended September 30, 2024, was approximately 5.8 million and was primarily

the result of proceeds from issuance of common stock, net of offering costs.

Accounts receivable and unbilled revenues for combined continuing and

discontinued operations decreased by approximately $105,000 as of September 30, 2024, compared to December 31, 2023.

This was mainly due

to the timing of receipts of customer payments.

Inventory for discontinued

operations decreased by approximately $132,000 during the nine months ended September 30, 2024, compared to December 31, 2023, mainly

as a result of increased sales of TSMs to customers and decreased purchases after the factory closure.

Accounts payable, accrued payroll and employee benefits, and accrued

expenses for combined continuing and discontinued operations decreased approximately $115,000 during the nine months ended September 30,

2024 compared to December 31, 2023, due to various payroll related expenses.

Net cash provided by financing

activities of $7.8 million during the nine months ended September 30, 2023 was the result of issuance of common stock under the B.

ATM Facility (as defined below).

We have incurred significant operating losses and negative cash flows

from operations since our inception.

The Company incurred net losses for combined continuing and discontinued operations of approximately

$1.1 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, compared to $1.3 million and $4.2

million for the three and nine months ended September 30, 2023, respectively, and had an accumulated deficit of approximately $222.5 million

and $217.6 million as of September 30, 2024 and December 31, 2023, respectively.

In addition, operating activities used cash of approximately

$4.4 million and $4.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Working capital (current assets

less current liabilities) was $14.1 million as of March 31, 2025, compared to $16.1 million as of December 31, 2024.

Net cash used in operating

activities for combined continuing and discontinued operations for the three months ended March 31, 2025, was $1.4 million and was primarily

the result of a net loss of $1.7 million and approximately $0.1 million in non-cash operating expenses, comprised of depreciation and

amortization and amortization of operating lease right-of-use assets and changes in operating assets and liabilities of $0.2 million.

Net cash used in operating activities for combined continuing and discontinued operations for the three months ended March 31, 2024, was

$1.9 million and was primarily the result of a net loss of $2.1 million and approximately $0.3 million in non-cash operating expenses,

comprised of stock-based compensation expense, depreciation and amortization, amortization of operating lease right-of-use assets and

inventory impairment loss and changes in operating assets and liabilities of $0.2 million.

Net cash used in investing

activities for the three months ended March 31, 2025, was approximately $40,000 and was primarily the result of purchase of property and

Net cash used in investing activities for the three months ended March 31, 2024, was zero.

Net cash used in financing

activities for the three months ended March 31, 2025 and 2024, was approximately $2,000 and $9,000, respectively, and was primarily the

result of principal payments on finance leases.

We have incurred significant

operating losses and negative cash flows from operations since our inception.

The Company incurred net losses for combined continuing

and discontinued operations of approximately $1.7 million for the three ended March 31, 2025, compared to $1.7 million for the three months

ended March 31, 2024, and had an accumulated deficit of approximately $225.8 million and $224.1 million as of March 31, 2025 and December

31, 2024, respectively.

In addition, operating activities used cash of approximately $1.4 million and $1.9 million for the three months

ended March 31, 2025 and 2024, respectively.

The condensed consolidated

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the date the financial statements were issued.

During the three months ended September 30, 2024, we sold an aggregate of 1,423,441 of

our common stock under the ATM Facility with aggregate net proceeds to us of $5.8 million, after payment of commissions to Ladenburg and

other expenses of $0.2 million.

In the future, we may require

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months prior to the expiration date.

On December 1, 2015, Pronode

Technologies AB entered into a lease agreement for 9,040 square feet of workshop located at Faktorvägen 17, Kungsbacka, Sweden.

facility lease terminated on September 30, 2024 and was not renewed.

For total rent expense for

combined continuing and discontinued operations, we recorded $127,000 and $376,000 for the three and nine months ended September 30, 2024,

respectively, compared to $120,000 and $365,000, respectively, for the three and nine months ended September 30, 2023.

combined continuing and discontinued operations, we recorded $104,000 for the three months ended March 31, 2025, compared to $126,000

for the three months ended March 31, 2024.

Non-Recurring Engineering Development Costs

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per ASIC for each of the first 2 million ASICs sold.

As of September 30, 2024, we had made no payments to TI under the NN1002 Agreement.

As of March 31, 2025, we had made no payments to TI under the NN1002 Agreement.

At-the-Market Offering Program

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Rule 415 under the Securities Act of 1933, as amended.

May 29, 2024, we terminated the B.

On May 29, 2024, we terminated the B.

Riley Sales Agreement with B.

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with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us (including any price

or size limits or other customary parameters or conditions the Company may impose).

We will pay Ladenburg a commission of 3.0% of the

gross sales price per Share sold under the Ladenburg Sales Agreement.

or size limits or other customary parameters or conditions we may impose).

We will pay Ladenburg a commission of 3.0% of the gross sales

price per share sold under the Ladenburg Sales Agreement.

are not obligated to sell any shares under the Ladenburg Sales Agreement.

The offering of the shares pursuant to the Ladenburg Sales Agreement

will terminate upon the earlier to occur of (i) the issuance and sale, through or to Ladenburg, of all of the shares of our common stock

subject to the Ladenburg Sales Agreement and (ii) termination of the Ladenburg Sales Agreement in accordance with its terms.

to the filing of our Form 10-K on February 28, 2024, the aggregate market value of our outstanding common stock held by non-affiliates

was approximately $26.7 million.

Pursuant to General Instruction I.B.6 of Form S-3, since the aggregate market value of our outstanding

common stock held by non-affiliates was below $75.0 million at the time of such Form 10-K filing, the aggregate amount of securities that

we are permitted to offer and sell was reduced to $12,909,525, which was equal to one-third of the aggregate market value of our common

stock held by non-affiliates as of June 3, 2024.

On June 4, 2024, we filed a prospectus supplement to the prospectus, dated May 16, 2024,

to the Form S-3 (File No.

333-279252) that reflects the sale restrictions pursuant to General Instruction I.B.6 of Form S-3 and to register

for sale of up to $10,366,156 of our common stock through the Ladenburg ATM Facility.

the three and nine months ended September 30, 2024, we sold an aggregate of 1,423,441 shares of our common stock, respectively, under

the Ladenburg ATM Facility with aggregate net proceeds to us of $5.8 million, after payment of commissions to Ladenburg and other expenses

of $0.2 million.

During the three and nine months ended September 30, 2023, we sold an aggregate of zero and 903,716 shares of our common

stock, respectively, under the B.

Riley ATM Facility with aggregate net proceeds to us of $7,9 million, after payment of commissions to

Riley Securities and other expenses of $0.2 million.

Critical Accounting Policies

Our contracts with customers

may include promises to transfer multiple products and services to a customer, particularly when one of our customers contracts with us

for a product and related engineering services fees for customizing that product for our customer.

Determining whether products and services

are considered distinct performance obligations that should be accounted for separately may require significant judgment.

also be required to determine the standalone selling price for each distinct performance obligation identified, although we generally

structure our contracts such that performance obligations and pricing for each performance obligation are specifically addressed.

have no outstanding contracts with multiple performance obligations;

however, we recently negotiated a contract that may include multiple

performance obligations in the future.

Judgment is also required

to determine when control of products passes from us to our distributors, as well as the amounts of product that may be returned to us.

Our products are sold with a right of return, and we may provide other credits or incentives to our customers, which could result in variability

when determining the amount of revenue to recognize.

At the end of each reporting period, we use product returns history and additional

information that becomes available to estimate returns and credits.

We do not recognize revenue if it is probable that a significant reversal

of any incremental revenue would occur.

Finally, judgment is required

to determine the amount of unbilled license fees at the end of each reporting period.

See Note 3 – Summary

of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1) for further

discussion of critical accounting policies and discussion of estimates.

There have been no other changes

from the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31,

The offering of shares pursuant to the Ladenburg Sales Agreement

will terminate upon the earlier to occur of (i) the issuance and sale, through Ladenburg, of all of the shares of our common stock subject

to the Ladenburg Sales Agreement and (ii) termination of the Ladenburg Sales Agreement in accordance with its terms.

the three months ended March 31, 2025 and 2024, no shares were sold under the Ladenburg ATM Facility.

Patent Assignment

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in connection with the original assignment to Aequitas.

As reflected in publicly available court filings, on June 8, 2020,

Neonode Smartphone LLC, an unrelated third party that is a subsidiary of Aequitas (“Aequitas Sub”), filed complaints against

(“Apple”) (assigned docket number 6:20-cv-00505-ADA), and Samsung Electronics Co., Ltd., and Samsung Electronics

America, Inc.

As reflected in publicly available

court filings, on June 8, 2020, Neonode Smartphone LLC, an unrelated third party that is a subsidiary of Aequitas (“Aequitas Sub”),

filed complaints against Apple Inc.

(“Apple”) (assigned docket number 6:20-cv-00505-ADA), and Samsung Electronics Co., Ltd.,

and Samsung Electronics America, Inc.

(collectively, “Samsung”) (assigned docket number 6:20-cv -00507-ADA;

see also 6:23-cv-00204-ADA), in the Western

District of Texas alleging infringement of two patents, U.S.

What changed 10-Q

Item 2. Management’s Discussion and Analysis